Economy: Further reform needed to raise growth prospects in Poland

28/03/2012 - Poland has been a strong performer across the OECD through the global economic crisis, growing much faster than most other countries and making impressive steps toward reducing the income gap with its European Union partners. With the European economy now slowing, the country must take new measures to reduce government deficits, implement key reforms and lay the foundations for sustainable long-term growth, according to the OECD’s latest Economic Survey of Poland.

The report, presented today in Warsaw by OECD Secretary-General Angel Gurría and Polish Deputy Prime Minister Waldemar Pawlak, warns that GDP growth will slow to below 3 percent during 2012-13, primarily as a result of weak activity in Europe.

“Poland’s strong economic performance in recent years is proof that appropriate macroeconomic policy combined with prudent regulation pays off,” Mr Gurría said. “Now is the time for the Polish authorities to promote innovative and green sources of growth and implement structural and social reforms that will continue promoting catch-up with the rest of Europe while solidifying the confidence of financial markets in Poland’s economic future.” ( read the full speech)

The policy priority today should be growth-friendly fiscal consolidation, which is the best way to reduce vulnerabilities across the economy, the OECD says. Lowering the budget deficit will help limit price pressures, keep external public debt under control and enhance fiscal credibility, all of which will alleviate contagion risks.

The government is expected to meet this year’s deficit target (2.9% of GDP in 2012), but more detailed measures will be needed to reach a 2% of GDP level in 2013 and the European Union’s Medium-Term Objective of 1% of GDP in 2015, the OECD said.

These will include cutting tax expenditures, reforming farmers’ social security system, implementing further pension reforms and enhancing public sector efficiency over the long-term.

In the event of a sharper-than-projected slowdown, Poland could cushion the shock by easing monetary conditions, provided that the zloty does not weaken substantially, and by allowing automatic fiscal stabilisers to work within the limits allowed by the Polish debt rule.

Looking ahead, the OECD says Poland can boost long-term growth by reducing the skills mismatch in the labour market and improving tertiary education. It should also continue seeking to ease administrative burdens on businesses and move ahead with the privatisation of state-owned companies.

The OECD report highlights a number of issues that must be addressed to improve outcomes and equity in the health-care system. These include widening the health care contribution base to secure adequate levels of funding and limit out-of-pocket payments, allowing new uses of private health insurance, reallocating funds from the hospital sector into primary care and better regulating doctors in both public and private institutions.

A special chapter of the report recommends that Poland adopt more efficient environmental policies to promote green growth and help minimise the abatement costs of reducing greenhouse gas emissions. Imposing an economy-wide single carbon price and maintaining the current uniform support to renewable sources of power are key to minimising overall abatement costs. Government policies to increase the production of nuclear power and natural gas from shale formations should fully consider environmental costs and risks.

Further information on the Economic Survey of Poland, is available at: www.oecd.org/eco/surveys/poland. You are invited to include this Internet link in coverage.